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Exam 9: Accounting for Current Liabilities and Payroll

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Question 21

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Zirkle Company borrowed $100,000 from Plains Bank on July 31,2016.The note carried a 6% interest rate with a one-year term to maturity. Required: 1)Show the effects of borrowing the money and the December 31,2016 adjustment on the accounting equation. 2)What is the amount of interest expense for 2016? 3)Prepare a statement of cash flows for the Zirkle Company for 2016.

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Question 22

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All lawsuits in which a company has been named a defendant should be either disclosed in the company's notes to the financial statements,or recognized as a liability on its balance sheet.

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Question 23

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The amount of net income on the 2017 income statement would be:

Use the following to answer questions In December 2016,Lucas Corporation sold merchandise for $10,000 cash.Lucas estimated that $700 of warranty claims might be filed in regard to these sales.On February 12,2017,warranty work amounting to $550 was performed for one of the customers ($430 labor paid in cash and $120 from the materials inventory). 53.Which of the following answers correctly shows the effect of the recognition of the warranty obligation at the end of 2016 on the financial statements of Lucas? A. B. C. D. Answer: D Learning Objective: 09-04 Topic Area: Warranty obligations AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: FN Measurement AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Level of Difficulty: 2 Medium Feedback: The entry to estimate future warranty costs related to 2016 sales increases expenses (warranty expense),which decreases net income and equity,and increases liabilities (warranties payable). -Which of the following answers indicates the effect of the February 12,2017 entry on the financial statements of Lucas Corporation?

Indicate whether each of the following statements is true or false. _____ a)Operating cycles for most businesses are less than one year. _____ b)If a business does not plan to use any of its current assets to repay a debt,then that debt is listed as long term even if it is due within a year. _____ c)The current ratio is computed by dividing current assets by net income. _____ d)The current ratio is a useful measure of a company's liquidity. _____ e)Liquidity is the ability of a business to repay liabilities in the long run.

On a classified balance sheet,the financial statement user will be able to distinguish between:

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.Enter only one letter for each element. -Kelly Co.sells goods to customers with a three-year warranty.During 2015,Kirk sold $800,000 of goods.On December 31,2015,Kelly made the appropriate year-end adjustment to record the warranty expense related to the goods sold during the year.During 2016,Kelly paid $4,000 cash to satisfy warranty claims.Show the effects of the 2016 payments to satisfy warranty claims.

Craig Company experienced an accounting event that is recorded in the following T-accounts: Which of the following choices accurately reflects how this event would affect Craig's financial statements.

Use the following to answer questions In December 2016,Lucas Corporation sold merchandise for $10,000 cash.Lucas estimated that $700 of warranty claims might be filed in regard to these sales.On February 12,2017,warranty work amounting to $550 was performed for one of the customers ($430 labor paid in cash and $120 from the materials inventory). 53.Which of the following answers correctly shows the effect of the recognition of the warranty obligation at the end of 2016 on the financial statements of Lucas? A. B. C. D. Answer: D Learning Objective: 09-04 Topic Area: Warranty obligations AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: FN Measurement AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Level of Difficulty: 2 Medium Feedback: The entry to estimate future warranty costs related to 2016 sales increases expenses (warranty expense),which decreases net income and equity,and increases liabilities (warranties payable). -Which of the following reflects the effect of the year-end adjusting entry to record estimated warranty expense?

The amount of cash flow from operating activities on the 2016 statement of cash flows would be:

At the beginning of 2016,McKee,Inc.had a balance in the Warranty Payable account of $15,600.During the year McKee sold for $650,000 several products that carried a two-year warranty.McKee estimated that warranty expense would be 3% of sales for the year. a)Prepare McKee's year-end adjusting journal entry for warranty expense. b)If McKee's incurred actual warranty cost is $12,500 during 2016,what is the balance in the Warranties Payable account after the adjusting entry is made?

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.Enter only one letter for each element. -Sierra Mining is the defendant in a $3 million lawsuit involving damage to the environment.Sierra's attorneys have advised the company that the outcome of the lawsuit is probable,and the likely settlement will be $750 thousand.

On August 1,2016,Denver & Co.borrowed money from the bank by issuing a one year,$24,000 face value discount note.The note carried a 6% discount rate. a)Prepare the journal entry to record the issuance of the note. b)Compute the amount of interest expense that will be shown on the 2016 income statement and prepare the appropriate journal entry. c)Prepare the liabilities section of the balance sheet at December 31,2016. d)What is the total amount of cash that will be paid to the bank at the maturity of the note on August 1,2017? Prepare all necessary journal entries on August 1,2017 (assume the note was paid in full).

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.Enter only one letter for each element. -Kelly Co.sells goods to customers with a three-year warranty.During 2015,Kelly sold $800,000 of goods.On December 31,2015,Kelly made the appropriate year-end adjustment to record the warranty expense related to the goods sold during the year.During 2016,Kelly paid $4,000 cash to satisfy warranty claims.Show the effects of the 2015 adjustment to record warranty expense.

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.Enter only one letter for each element. -Pearl Company sold merchandise to a customer for $800 cash in a state where the sales tax rate is 5%.(Ignore the effect of cost of goods sold. )

The issuer of a note payable is also known as the maker.

FICA taxes are recorded both as salary expense and as payroll tax expense.

At the end of 2015,Durango Company recorded an adjusting entry for its obligation under product warranties.During 2016,it replaced products to its customers under the terms of the warranties.The 2016 warranty settlements should be recorded as asset use transactions.

The December 31,2016 balance sheet of Rowan Company shows current assets of $32,000 and current liabilities of $20,000.On January 1,2017 the company recorded the following entries: After the two journal entries were recorded,the company current ratio is:

Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?